Janet Yellen keeps trying to gain bargaining leverage in the debt limit debate by scaring investors with her constant chatter about a default on the debt. She wants Republicans to cave into Biden’s demands of a “clean” debt bill. This shameful fear tactic only makes it MORE likely that bondholders will get jittery and sell their Treasuries – which could raise interest rates and cost taxpayers billions of dollars. That’s exactly the panicked selling she says she’s trying to avoid.
But if she (and Biden) were pursuing the best interests of the country, she would be assuring investors that a default will NOT happen – for two reasons. First, the June 1 deadline is arbitrary and the Treasury can jigger the books — for example by shuffling around money from pension funds — so that the debt ceiling is not technically breached for perhaps many months.
Second, even if we reach the debt ceiling, the administration has the authority to pay some bills immediately and delay other payments until later – when the stalemate is ended. As our senior fellow in economics, EJ Antoni notes in his Fox Business piece below, paying off bondholders is easy to do because interest payments are about $400 billion, but annual revenues are closer to $3 trillion – or seven times higher.
Congress can keep most agencies of the government operating because appropriations are enacted on a fiscal year basis and there is no constitutional problem of delaying some expenditures within a fiscal year; in fact, OMB has express statutory authority to do so via what is called “apportionment.” Joe was in Congress for 40 years. He should know that!